Reliance Industries shares at Rs 3,450? Jefferies' upside scenario for RIL assumes possible Jio listing, tariff hikes

Jefferies, which met energy and chemicals sector investors in the recent UK roadshow, said investors were keen to understand scalability of Reliance Retail on the back of increased capex, sustainability of improving refining and petrochemical spreads, monetisation of 5G capex in Jio and status of green energy capex and possible timelines for de-merger.

In its latest note on Reliance Industries, Jefferies said risk-reward is favourable for the stock, as it suggested a share price target of Rs 3,125, based on its base case scenario. This scenario projects 20 per cent Ebitda CAGR in Jio over FY22-25E, helped by 47.2 crore subscribers at an average revenue per user (ARPU) of Rs 200. The scenario projects 36 per cent Ebitda CAGR in Retail, 19 per cent Ebitda CAGR in refining and 16 per cent growth in petchem segment over the period mention.

In its upside scenario, Jefferies sees the stock at Rs 3,450. This target assumes recovery in gross refining margin ahead of its estimates and a faster consolidation in telecom sector, leading to tariff upside in Jio. It also assumes possible public listing of Jio re-rating valuation multiples.

Besides, Jefferies sees Reliance Retail gaining market share faster-than-expected and Jiomart's gross merchandise values GMV coming in ahead of expectations in this scenario.

In the case of Reliance Jio, there is a near 100 million potential broadband addressable market up for grabs and that Jio has aggressive market share targets, Jefferies said.

"Jio has cornered 55 per cent incremental market share in broadband subscriber addition. Jio's intra-city fibre route-km is 7 times that of Bharti's but monthly broadband sub adds are 2-2.2 times. We expect broadband subscriber adds to accelerate augmented by rapid FWA rollout. Margins shd increase as cost of data on 5G is only a fraction of that on 4G," Jefferies said.

Besides, it noted that , Russia's share of India's oil imports at 42 per cent in May is contributing $5 per barrel additional margin to RIL. Petchem margins are improving on inventory correction and improving demand in China, it said.

"Lower US ethane prices are also aiding margins. However, elevated capacity additions in China are likely to cap margins below long-term average in FY24E. We see limited downside to our 9 per cent O2C EBITDA growth estimate in FY24E," Jefferies said.

Also, Jefferies expects year-on-year declined in Reliance Retail capex in FY24-25E as it sees room for faster revenue growth and higher margins on 32 million square feet added over FY22-23 on 34 million square feet base.